Is a Natural Person Eligible for the Application of the Small Business Relief?
In the dynamic landscape of Dubai's economic ecosystem, small businesses play a pivotal role in driving innovation and contributing to the region's growth. However, these small enterprises often encounter numerous challenges, particularly in navigating the complexities of taxation. The UAE tax system recognizes the significance of these enterprises and provides relief mechanisms, such as the Small Business Relief, aimed at simplifying the accounting procedures and offering a more straightforward approach to managing taxes for eligible small businesses.
Understanding the nuances of this relief and how it can positively impact natural persons and their enterprises in the UAE is crucial. Join us in this blog as we delve deeper into the realm of Small Business Relief and understand how it benefits UAE-based businesses.
What is “Small Business Relief”?
Small Business Relief is a valuable tax benefit provided by the UAE government to small businesses that enables them to use a simplified accounting method - the cash method for tax purposes. Unlike the more complicated accrual method, the cash method is notably more straightforward, as income is recognized when received and expenses are recognized when paid. This simplicity is particularly beneficial for businesses with limited resources that can't afford complex accounting systems.
To be eligible for Small Business Relief, businesses must meet specific criteria. For tax periods that end on or before December 31, 2026, any of the following Resident Persons with annual revenue of AED 3 million or below can claim Small Business Relief:
- A natural person.
- A legal entity that is neither:
- – a Constituent Company of a Multinational Enterprise Group that operates in more than one country and has a total consolidated group revenue of more than AED 3.15 billion in each financial period;
- – nor a Qualifying Free Zone Person i.e., a legal person incorporated, established, or otherwise registered in a Free Zone
Essentially, qualifying small businesses can treat their taxable income as zero, i.e., they will not have to pay any corporate taxes during the applicable period.
You can also read in detail: Small Business Tax Relief Under UAE CT
Can a Natural Person Elect for the Application of the Small Business Relief?
In Dubai's tax framework, the concept of a 'small business' isn’t confined solely to registered companies. Rather, it extends to natural persons too, i.e., sole proprietors and individuals engaging in business activities that meet the specified criteria. This encompasses individuals operating as freelancers, consultants, or engaging in any business activity within the defined thresholds.
A natural person falls under the resident person criteria stated by the authorities who can elect for small business relief. If they earn any income or profits from any business or business activity, then they will be required to get registered under the CT only if their turnover exceeds AED 1,000,000. Hence, in such situations, they can elect to apply for the SBR if they meet the criteria.
However, some limitations may restrict the application of Small Business Relief. For instance, activities categorized as tax shelters or syndicates might not qualify for this relief. Such categorizations often pertain to partnerships with specific allocation structures for losses to limited partners or entrepreneurs.
The common rules regarding Tax Losses also do not apply for the qualifying taxpayer i.e. they cannot accumulate, use, or transfer Tax Losses during the relief period. Any unused Tax Losses from a prior period without Small Business Relief will be carried forward for future use, provided they meet the conditions of the Corporate Tax Law.
Additionally, natural persons must ensure compliance with the defined criteria and seek professional guidance. This is because navigating the intricacies of tax regulations, especially when considering relief options, requires a customized approach and a nuanced understanding of eligibility and compliance to avoid unintended consequences. Seeking guidance from qualified accounting firms like CDA will help small businesses get comprehensive advice, ensuring they optimize their tax benefits while adhering to regulatory guidelines.
In essence, the UAE's commitment to supporting small businesses through targeted relief mechanisms reflects its dedication to fostering a thriving entrepreneurial landscape. Leveraging such initiatives benefits businesses while boosting the region's economic vitality. Natural persons engaging in business activities in Dubai can indeed elect for the Small Business Relief, benefiting from the simplified accounting method provided they meet the stipulated criteria. However, considerations and limitations exist, highlighting the need for careful assessment and professional counsel.
You can also read: Everything You Need to Know About Corporate Tax
CDA at your Assistance?
Partnering with Corporate tax professionals at CDA will help you assess the potential impacts of small business relief on your overall tax strategies. Our expertise will play an instrumental role in helping you make informed decisions that align with your financial goals and ensure compliance with the regulatory framework.
For comprehensive guidance on Small Business Relief and other tax-related matters, don't hesitate to contact our team today.